TEMPE, Ariz., Dec. 8, 2015 /PRNewswire/ -- Economic growth in the United States will continue in 2016, say the nation's purchasing and supply management executives in their December 2015 Semiannual Economic Forecast. Expectations are for a continuation of the economic recovery that began in mid-2009, as indicated in the monthly ISM®Report On Business®. The manufacturing sector is optimistic about growth in 2016, with revenues expected to increase in 16 manufacturing industries, and the non-manufacturing sector predicts that 15 of its industries will see higher revenues. Capital expenditures, a major driver in the U.S. economy, are expected to increase by 1 percent in the Manufacturing sector and by 7.5 percent in the non-manufacturing sector. Manufacturing expects that its employment base will grow by 0.2 percent, while non-manufacturing expects employment growth of 1.7 percent.

These projections are part of the forecast issued by the Business Survey Committee of the Institute for Supply Management® (ISM®). The forecast was released today by Bradley J. Holcomb, CPSM, CPSD, chair of the ISM Manufacturing Business Survey Committee, and by Anthony S. Nieves, CPSM, C.P.M., CFPM, chair of the ISM Non-Manufacturing Business Survey Committee.

"Manufacturing purchasing and supply executives expect to see growth in 2016. They are optimistic about their overall business prospects for the first half of 2016, and are more optimistic about the second half of 2016," said Holcomb. "In 2015, manufacturing experienced 10 consecutive months of growth from January through October, followed by one month of contraction in November, resulting in an average PMI of 51.7 for the first 11 months of 2015 as reported in the monthly Manufacturing ISM Report On Business®. Our forecast calls for more growth in 2016. Respondents expect raw materials pricing pressures in 2016 to be very low, and expect their profit margins will improve in 2016 over 2015. Manufacturers are also predicting growth in both exports and imports in 2016."

In the manufacturing sector, respondents report operating at 81.6 percent of their normal capacity, up 2.1 percentage points from the 79.5 percent reported in April 2015. Purchasing and supply executives predict that capital expenditures will increase by a modest 1 percent in 2016 over 2015, compared to the 8.3 percent increase reported for 2015 over 2014. Manufacturers have an expectation that employment in the sector will increase by only 0.2 percent in 2016, while labor and benefit costs are expected to increase an average of 1.7 percent. Respondents also expect the U.S. dollar to strengthen against all seven currencies of major trading partners in 2016, as was the case in 2015.

The panel predicts the prices paid for raw materials will increase by 0.1 percent during the first four months of 2016, and will increase an additional 0.4 percent during the balance of the year, with an overall increase of 0.5 percent for 2016. This compares to a reported 2.6 percent decrease in raw materials prices for 2015 compared with 2014.

Two special questions were asked of our panel. The first special question asked about the net impact to date on their organization's profits due to the sharply lower prices of oil and related commodities in 2015. The responses from our manufacturing panel, with percentages of the total number of responses noted, were "Negative" (13.7%), "Negligible" (36%), "Positive" (43.4%), and "Unsure" (6.9%). This indicates that, even though some of our respondents were unsure of the impact of lower oil prices, nearly 80 percent felt lowered oil prices did not have a negative impact on their business.

The second special question asked about the net impact on their organization's profits for the full year of 2015 related to the strength of the U.S. dollar. The responses from our manufacturing panel, with percentages of the total number of responses noted, were "Negative" (21.3%), "Negligible" (37.9%), "Positive" (25.3%), and "Unsure" (15.5%). This indicates that, even though some of our respondents were unsure of the impact of a strong dollar, greater than 60 percent felt the strong dollar did not have a negative impact on their business. In this case, however, the impact was more likely inconsequential rather than positive.

"Non-manufacturing supply managers report operating at 87.9 percent of their normal capacity, higher than the 86 percent reported in April 2015. They are optimistic about continued growth in the first half of 2016 compared to the second half of 2015," said Nieves. "They forecast that their capacity to produce products and provide services will rise by 2.8 percent during 2016, and capital expenditures will increase by 7.5 percent from 2015 levels. Non-manufacturers also predict their employment will increase by 1.7 percent during 2016."

Respondents in non-manufacturing industries expect the prices they pay for materials and services will increase by 1.5 percent during 2016. They also forecast their overall labor and benefit costs will increase 2.3 percent in 2016. Profit margins are reported to have increased in the second and third quarters of 2015, and respondents expect them to increase between now and April 2016.

Two special questions were asked of our Panel. In response to the first question in which we asked the panel about the net impact to date on their organization's profits due to the sharply lower prices of oil and related commodities in 2015, non-manufacturing respondents indicated the following: "Negative" impact on organization's profits (9.3%); "Negligible" impact on organization's profits (43.0%); "Positive" impact on organization's profits (37.7%); and "Unsure" (9.9%). This indicates that, even though some of our respondents were unsure of the impact of lower oil prices, 80 percent felt lowered oil prices did not have a negative impact on their business.

In response to a second special question in which we asked the panel about the net impact on their organization's profits for the full year 2015 related to the strength of the U.S. dollar, non-manufacturing respondents indicated the following: "Negative" impact on organization's profits (10.7%); "Negligible" impact on organization's profits (56.0%); "Positive" impact on organization's profits (17.3%); and "Unsure" (16.0%). This indicates that, even though some of our respondents were unsure of the impact of a strong dollar, greater than 70 percent felt the strong dollar did not have a negative impact on their business. As it was with low oil prices, the impact was more likely inconsequential rather than positive.

OPERATING RATE

ManufacturingManufacturing purchasing and supply executives report their companies are currently operating at 81.6 percent of normal capacity. This is a moderate increase when compared to April 2015 (79.5%), and a moderate decrease when compared to December 2014 (83.7%). The following 10 industries — listed in order — are operating above the average rate of 81.6 percent: Printing & Related Support Activities; Wood Products; Paper Products; Apparel, Leather & Allied Products; Miscellaneous Manufacturing; Nonmetallic Mineral Products; Plastics & Rubber Products; Petroleum & Coal Products; Fabricated Metal Products; and Chemical Products.

Non-ManufacturingNon-manufacturing supply executives report their organizations are currently operating at 87.9 percent of normal capacity. This is higher than the 86 percent reported in April 2015, and the 87.6 percent reported in December 2014. Considering the production capacity increases reported in the following section of this forecast, this indicates that non-manufacturing industries are continuing to add capacity, but also find it necessary to maintain their capacity utilization at a relatively high level. The 10 industries operating at or above the average capacity level of 87.9 percent — listed in order — are: Real Estate, Rental & Leasing; Educational Services; Transportation & Warehousing; Information; Retail Trade; Public Administration; Accommodation & Food Services; Agriculture, Forestry, Fishing & Hunting; Utilities; and Finance & Insurance.

The principal means of achieving increases in production capacity in 2015 were (in order of importance):

More hours worked with existing personnel

Additional personnel (permanent, temporary or contract)

Additional plant and/or equipment

Replaced equipment with technically advanced equipment

Non-ManufacturingThe capacity to produce products or provide services in the non-manufacturing sector increased 1.5 percent during 2015. This compares to the 3.6 percent increase reported in December 2014 for the year 2014, and is less than what was predicted in April 2015, a 2.6 percent increase for 2015. For 2016, an increase of 2.8 percent is predicted. For 2015, 25 percent of non-manufacturing supply managers indicate increases averaging 8.4 percent, and 7 percent of respondents indicate decreases averaging 9.8 percent. Sixty-eight percent see no change in their capacity. The 12 industries reporting increases in capacity in 2015 — listed in order — are: Transportation & Warehousing; Construction; Mining; Wholesale Trade; Public Administration; Health Care & Social Assistance; Retail Trade; Professional, Scientific & Technical Services; Arts, Entertainment & Recreation; Management of Companies & Support Services; Utilities; and Finance & Insurance.

Non-Manufacturing Production or Provision Capacity

Predicted For 2015

Reported For 2015

Predicted For 2016

Predicted

Apr 2015

Magnitude of Change

Reported

Dec 2015

Magnitude of Change

Predicted

Dec 2016

Magnitude of Change

Higher

23%

+14.0%

25%

+8.4%

35%

+8.4%

Same

71%

NA

68%

NA

64%

NA

Lower

6%

-11.0%

7%

-9.8%

1%

-5.8%

Net Average

+2.6%

+1.5%

+2.8%

The principal means of achieving increases in production capacity in 2015 were (in order of importance):

More hours worked with existing personnel

Additional personnel (permanent, temporary or contract)

Replaced equipment with technically advanced equipment

Additional plant and/or equipment

CAPITAL EXPENDITURES — 2015 vs. 2014

ManufacturingPurchasing and supply managers report 2015 capital expenditures increased 8.3 percent on average when compared to 2014 levels. The actual expenditures for 2015 were well above survey respondents' previous expectations, as they predicted an increase of 3.1 percent for 2015 in April 2015. The 37 percent of purchasers who reported increased capital expenditures in 2015 indicated an average increase of 36.6 percent, while the 23 percent who said their capital spending was reduced reported an average decrease of 22.4 percent. Forty percent of respondents said they spent the same in 2015 as in 2014. The 12 industries showing increases in capital expenditures for 2015 — listed in order of percentage increase — are: Furniture & Related Products; Printing & Related Support Activities; Paper Products; Fabricated Metal Products; Food, Beverage & Tobacco Products; Textile Mills; Nonmetallic Mineral Products; Miscellaneous Manufacturing; Primary Metals; Wood Products; Transportation Equipment; and Chemical Products.

ManufacturingPurchasing and supply executives expect capital expenditures to increase 1 percent in 2016. The 31 percent of respondents who predict increased capital expenditures in 2016 indicate an average increase of 24.1 percent, while the 23 percent who said their capital spending would be reduced predict an average decrease of 28.1 percent. Forty-six percent said they expect to spend the same in 2016 as in 2015. The eight industries predicting increases in capital expenditures for 2016 — listed in order of percentage increase — are: Furniture & Related Products; Plastics & Rubber Products; Primary Metals; Electrical Equipment, Appliances & Components; Transportation Equipment; Computer & Electronic Products; Apparel, Leather & Allied Products; and Fabricated Metal Products.

Non-ManufacturingNon-manufacturing purchasing and supply executives are expecting an increase of 7.5 percent in capital expenditures in 2016, more than the increase of 2.6 percent they are reporting for 2015. The 46 percent of respondents expecting to spend more on capital expenditures predict an average increase of 21.6 percent. An additional 17 percent anticipate a decrease averaging 15.1 percent. Thirty-seven percent expect to spend the same on capital expenditures in 2016 as in 2015. The 12 industries expecting increases in capital expenditures in 2016 — listed in order of percentage increase — are: Real Estate, Rental & Leasing; Transportation & Warehousing; Health Care & Social Assistance; Professional, Scientific & Technical Services; Accommodation & Food Services; Public Administration; Retail Trade; Educational Services; Information; Construction; Arts, Entertainment & Recreation; and Wholesale Trade.

Predicted Capital Expenditures 2016 vs. 2015

Manufacturing

Non-Manufacturing

PredictedDec 2015

Magnitudeof Change

PredictedDec 2015

Magnitudeof Change

Higher

31%

+24.1%

46%

+21.6%

Same

46%

NA

37%

NA

Lower

23%

-28.1%

17%

-15.1%

Net Average

+1.0%

+7.5%

PRICES — Changes Between End of 2014 and End of 2015

ManufacturingAfter an earlier forecast in April 2015 of a 0.9 percent decrease in prices paid for raw materials in 2015, survey respondents now report realized price decreases averaging 2.6 percent for the year 2015. The 22 percent who say their prices are higher now than at the end of 2014 report an average increase of 4.2 percent, while the 54 percent who report lower prices averaged a 6.6 percent decrease. The remaining 24 percent indicate no change between the end of 2014 and the end of 2015. The three industries experiencing average price increases in 2015 are: Furniture & Related Products; Nonmetallic Mineral Products; and Food, Beverage & Tobacco Products.

ManufacturingTwenty-nine percent of purchasing and supply managers expect the prices they pay to increase in early 2016 by an average of 4.1 percent. At the same time, 24 percent anticipate decreases averaging 4.8 percent. Including the 47 percent who expect no change in prices in the first four months of 2016, purchasers expect the net average overall price change to increase 0.1 percent for the first four months of 2016. The 10 industries predicting increases in prices paid in the first part of 2016 higher than the 0.1 percent average — listed in order — are: Wood Products; Food, Beverage & Tobacco Products; Printing & Related Support Activities; Miscellaneous Manufacturing; Apparel, Leather & Allied Products; Paper Products; Furniture & Related Products; Transportation Equipment; Chemical Products; and Electrical Equipment, Appliances & Components.

Non-ManufacturingNon-manufacturing survey respondents predict their purchases in the first four months of 2016 will cost an average of 1.1 percent more than at the end of 2015. This is more than the 0.4 percent increase reported in the preceding section for all of 2015. Considering the prediction of a price change for all of 2016 (1.5 percent), purchasing and supply executives expect most of next year's price increases to occur in the first part of next year. Fifty percent of non-manufacturing respondents predict the prices they pay will increase an average of 3.7 percent in the first part of 2016. Fourteen percent of respondents expect price decreases averaging 4.8 percent. The remaining 36 percent predict no change in prices in the first four months of 2016. The eight industries predicting greater than or equal to the 1.1 percent average increase in prices they expect to pay in the first part of 2016 — listed in order of percentage increase — are: Educational Services; Other Services; Health Care & Social Assistance; Real Estate, Rental & Leasing; Public Administration; Utilities; Professional, Scientific & Technical Services; and Management of Companies & Support Services.

Prices – Predicted Changes Between End of 2015 and April 2016

Manufacturing

Non-Manufacturing

PredictedDec 2015

Magnitude of Change

PredictedDec 2015

Magnitudeof Change

Higher

29%

+4.1%

50%

+3.7%

Same

47%

NA

36%

NA

Lower

24%

-4.8%

14%

-4.8%

Net Average

+0.1%

+1.1%

PRICES — Predicted Changes Between End of 2015 and End of 2016

ManufacturingRespondents predict a net average increase in prices paid of 0.5 percent between December 2015 and December 2016, indicating they expect prices to increase an additional 0.4 percent during the period of May 2016 through December 2016. Forty-three percent of respondents expect an average price increase of 4 percent for the full year of 2016, while 26 percent expect an average reduction of 4.5 percent. The remaining 31 percent expect no change in their average prices paid for the year 2016. The 12 industries expecting to receive increases above the predicted average of 0.5 percent by the end of 2016 — listed in order — are: Wood Products; Printing & Related Support Activities; Food, Beverage & Tobacco Products; Furniture & Related Products; Fabricated Metal Products; Paper Products; Computer & Electronic Products; Chemical Products; Miscellaneous Manufacturing; Apparel, Leather & Allied Products; Nonmetallic Mineral Products; and Electrical Equipment, Appliances & Components.

Non-ManufacturingFor all of 2016, non-manufacturing supply management executives expect their prices to increase an average of 1.5 percent. Fifty-nine percent of respondents expect increases averaging 3.8 percent, 15 percent anticipate prices to drop an average of 5.4 percent, and 26 percent foresee no change in prices during the next year. The seven industries expecting greater than the 1.5 percent average price increase by the end of 2016 — listed in order of percentage increase — are: Educational Services; Other Services; Health Care & Social Assistance; Utilities; Transportation & Warehousing; Real Estate, Rental & Leasing; and Public Administration.

Predicted Price Changes Between End of 2015 and End of 2016

Manufacturing

Non-Manufacturing

PredictedDec 2015

Magnitudeof Change

PredictedDec 2015

Magnitudeof Change

Higher

43%

+4.0%

59%

+3.8%

Same

31%

NA

26%

NA

Lower

26%

-4.5%

15%

-5.4%

Net Average

+0.5%

+1.5%

LABOR AND BENEFIT COSTS — Predicted Rate Change End of 2015 vs. End of 2016

ManufacturingPurchasing and supply executives expect higher overall labor and benefit costs for 2016. Sixty-one percent of respondents expect increased labor and benefit costs and expect them to grow by an average of 3.4 percent for all of 2016, while the 5 percent forecasting lower costs see them decreasing by an average of 7.5 percent. Including the 34 percent of respondents who believe costs will remain the same, the overall net rate of increase is expected to be 1.7 percent between the end of 2015 and the end of 2016. The 10 industries expecting to pay an increase of 1.7 percent or higher — listed in order of percentage increase — are: Printing & Related Support Activities; Furniture & Related Products; Plastics & Rubber Products; Textile Mills; Nonmetallic Mineral Products; Paper Products; Transportation Equipment; Fabricated Metal Products; Wood Products; and Electrical Equipment, Appliances & Components.

Non-ManufacturingPurchasing and supply executives expect a 2.3 percent increase in labor and benefit costs for non-manufacturing industries in 2016. Sixty-two percent of respondents expect such costs to increase by an average of 4.1 percent. Another 4 percent of respondents expect labor and benefit costs to shrink by an average of 4.8 percent, and 34 percent believe costs will remain stable during 2016. The seven industries expecting to pay an increase of 2.3 percent or higher — listed in order of percentage increase — are: Transportation & Warehousing; Professional, Scientific & Technical Services; Utilities; Information; Wholesale Trade; Retail Trade; and Public Administration.

Labor and Benefit Costs — Predicted Rate Change End of 2015 vs. End of 2016

EXPORT BUSINESS —Predicted Change for Next Half Year (First Half of 2016)

ManufacturingThe responses for this semiannual report indicate purchasers see increases in new export orders for the first half of 2016, reversing the recent trend reported in the monthly Manufacturing ISM Report On Business® in which new export orders are indicated as contracting for the last six months, from June 2015 through November 2015. Of the 81 percent of respondents who export, 40 percent predict an increase (39 percent moderate and 1 percent substantial) over the next half-year. Thirteen percent of respondents (12 percent moderate and 1 percent substantial) predict a decrease in their exports, and 46 percent anticipate no change in exports over the next half-year. The 12 industries expecting growth in exports during the first half of 2016 — listed in order — are: Paper Products; Printing & Related Support Activities; Miscellaneous Manufacturing; Furniture & Related Products; Petroleum & Coal Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; Fabricated Metal Products; Nonmetallic Mineral Products; Plastics & Rubber Products; Chemical Products; and Transportation Equipment.

Non-ManufacturingFor the first half of 2016, non-manufacturing supply managers who report that their organizations engage in exporting are optimistic concerning their export business. Of the 29 percent of non-manufacturing business survey respondents who report that they export, 30 percent predict an increase (28 percent moderate and 2 percent substantial) over the next half year. Seven percent of the respondents expect a decrease in their exports (5 percent moderate and 2 percent substantial), and 63 percent anticipate no change in exports over the next half year. Of the industries that report they export, the following six industries expect growth in export business in the first half of 2016 — listed in order — are: Management of Companies & Support Services; Transportation & Warehousing; Accommodation & Food Services; Professional, Scientific & Technical Services; Construction; and Wholesale Trade.

Predicted Change in Export Business — Next Half Year

Manufacturing

Non-Manufacturing

Predicted For 2015

Predicted For 2016

Predicted For 2015

Predicted For 2016

First Half of 2015PredictedDec 2014

First Half of 2016Predicted Dec 2015

First Half of 2015PredictedDec 2014

First Half of 2016Predicted Dec 2015

Substantial Increase

4%

1%

4%

2%

Moderate Increase

49%

39%

30%

28%

No Change

40%

46%

64%

63%

Moderate Decrease

7%

12%

2%

5%

Substantial Decrease

0%

1%

0%

2%

Diffusion Index

72.6%

63.2%

66.0%

61.6%

IMPORT BUSINESS — Predicted Change for Next Half Year (First Half of 2016)

Non-ManufacturingNon-manufacturers have higher expectations for the use of imports for the first half of 2016 than they did in December 2014 for the first half of 2015. Of the 48 percent of non-manufacturing organizations who reported they import, 45 percent (45 percent moderate and 0 percent substantial) predict an increase in their imports during the first half of 2016. Ten percent of the respondents (8 percent moderate and 2 percent substantial) predict a decrease in imports of materials and services. The remaining 45 percent of purchasers expect no change in imports over the next half year. The 10 industries expecting growth in imports — listed in order — are: Health Care & Social Assistance; Management of Companies & Support Services; Information; Construction; Wholesale Trade; Professional, Scientific & Technical Services; Accommodation & Food Services; Transportation & Warehousing; Retail Trade; and Public Administration.

Predicted Change in Import Business — Next Half Year

Manufacturing

Non-Manufacturing

Predicted For 2015

Predicted For 2016

Predicted For 2015

Predicted For 2016

First Half of 2015PredictedDec 2014

First Half of 2016Predicted Dec 2015

First Half of 2015PredictedDec 2014

First Half of 2016Predicted Dec 2015

Substantial Increase

3%

1%

1%

0%

Moderate Increase

38%

32%

37%

45%

No Change

51%

53%

59%

45%

Moderate Decrease

7%

14%

3%

8%

Substantial Decrease

1%

1%

0%

2%

Diffusion Index

66.1%

59.2%

67.6%

67.8%

BUSINESS REVENUES

Business Revenues Comparison — 2015 vs. 2014

ManufacturingSummarizing revenues for 2015, 49 percent of respondents say revenue was better than 2014, and that nominal (before adjusting for inflation) revenues increased an average of 8.7 percent over 2014. Conversely, 25 percent say their nominal revenues decreased in 2015 by an average of 11.4 percent, and the remaining 26 percent indicate no change. Overall, purchasing and supply executives indicate a net nominal increase of 1.4 percent in business revenues for 2015 over 2014. This is significantly less than the 3.5 percent increase that was forecast in April 2015 for all of 2015, and also significantly less than the 3.6 percent increase predicted in December 2014 for all of 2015. The 12 industries reporting increases (highest to lowest) in revenues in 2015 — listed in order — are: Printing & Related Support Activities; Nonmetallic Mineral Products; Furniture & Related Products; Plastics & Rubber Products; Fabricated Metal Products; Miscellaneous Manufacturing; Paper Products; Food, Beverage & Tobacco Products; Chemical Products; Transportation Equipment; Machinery; and Computer & Electronic Products.

Manufacturing Business Revenues — 2015 vs. 2014

ReportedDec 2014

Nominal% Change

PredictedApril 2015

Nominal% Change

ReportedDec 2015

Nominal% Change

Higher

62%

+9.1%

55%

+9.0%

49%

+8.7%

Same

20%

NA

29%

NA

26%

NA

Lower

18%

-10.8%

16%

-8.9%

25%

-11.4%

Net Average

+3.6%

+3.5%

+1.4%

Non-ManufacturingNon-manufacturing supply management executives report that business revenues for 2015 have increased over 2014 by 2.7 percent. This is less than the 2.9 percent increase predicted in April 2015 for all of 2015. The 57 percent of respondents reporting better business in 2015 than in 2014 estimate average nominal (before adjusting for inflation) revenue increase of 8.7 percent. This is in contrast to an average nominal decrease of 11.6 percent reported by the 18 percent of respondents who indicate worse business in 2015. The remaining 25 percent have experienced no change in 2015 from 2014. The 13 industries reporting increases in revenues in 2015 — listed in order — are: Health Care & Social Assistance; Information; Construction; Accommodation & Food Services; Arts, Entertainment & Recreation; Finance & Insurance; Retail Trade; Professional, Scientific & Technical Services; Transportation & Warehousing; Educational Services; Public Administration; Other Services; and Utilities.

Non-Manufacturing Business Revenues — 2015 vs. 2014

ReportedDec 2014

Nominal% Change

PredictedApril 2015

Nominal% Change

ReportedDec 2015

Nominal% Change

Higher

57%

+11.3%

54%

+8.9%

57%

+8.7%

Same

30%

NA

35%

NA

25%

NA

Lower

13%

-9.8%

11%

-16.8%

18%

-11.6%

Net Average

+5.1%

+2.9%

+2.7%

Business Revenues Prediction for 2016

ManufacturingManufacturing survey respondents forecast that business revenues for 2016 will be stronger than in 2015. The 63 percent of respondents forecasting better business revenues in 2016 than in 2015 estimate an average nominal (before adjusting for inflation) increase of 8.8 percent in their organizations' revenues. This is in contrast to an average nominal decrease of 11.3 percent forecast by the 13 percent who predict worse business revenues in 2016. Including the 24 percent who see no change in 2016, the forecast for overall net nominal increase in business revenues for 2016 over 2015 is 4.1 percent. The 16 manufacturing industries expecting revenue improvement in 2016 over 2015 — listed in order — are: Furniture & Related Products; Nonmetallic Mineral Products; Computer & Electronic Products; Miscellaneous Manufacturing; Printing & Related Support Activities; Textile Mills; Fabricated Metal Products; Primary Metals; Chemical Products; Paper Products; Transportation Equipment; Food, Beverage & Tobacco Products; Wood Products; Plastics & Rubber Products; Machinery; and Electrical Equipment, Appliances & Components.

Non-ManufacturingNon-manufacturing survey respondents forecast that business revenues for 2016 will be improved over 2015 by an average of 3.2 percent. This is greater than the 2.7 percent increase reported for 2015, and less than the 5.1 percent increase reported one year ago for 2014 revenues over 2013 revenues. The 60 percent of respondents forecasting better business in 2016 than in 2015 estimate average nominal (before adjusting for inflation) revenue increase of 7.7 percent. This is in contrast to an average nominal decrease of 14.9 percent forecast by the 10 percent who predict worse business in 2016. The remaining 30 percent see no change in 2016. The 15 industries expecting increases in revenues in 2016 — listed in order of percentage increase — are: Construction; Mining; Professional, Scientific & Technical Services; Accommodation & Food Services; Transportation & Warehousing; Information; Retail Trade; Utilities; Management of Companies & Support Services; Arts, Entertainment & Recreation; Wholesale Trade; Public Administration; Other Services; Finance & Insurance; and Educational Services.

Non-ManufacturingNon-manufacturing supply management executives were asked about changes in profit margins their organizations recently experienced and are expecting in the near future. Their responses indicate that 36 percent experienced an increase in profit margins during the second and third quarters of 2015, while 15 percent found smaller profit margins, and 49 percent had no change in margins during the same period. Looking ahead from now through April 2016, 35 percent of supply managers expect improved profit margins, 15 percent expect lower profit margins, and the remaining 50 percent of respondents anticipate no change in their profit margins. The 11 industries expecting an increase in profit margins in 2016 — listed in order of percentage increase — are: Arts, Entertainment & Recreation; Construction; Finance and Insurance; Professional, Scientific & Technical Services; Management of Companies & Support Services; Information; Wholesale Trade; Retail Trade; Transportation and Warehousing; Accommodation and Food Services; and Health Care and Social Assistance.

Profit Margins

Manufacturing

Non-Manufacturing

Apr 2015 through Nov 2015Reported Dec 2015

Nov 2015 through Apr 2016Predicted Dec 2015

Apr 2015 through Nov 2015Reported Dec 2015

Nov 2015 through Apr 2016Predicted Dec 2015

Better

35%

37%

36%

35%

Same

40%

50%

49%

50%

Worse

25%

13%

15%

15%

Diffusion Index

55.0%

62.0%

60.5%

60.0%

BUSINESS COMPARISON

The First Half of 2016 Compared with Last Half of 2015

ManufacturingLooking ahead to the first half of 2016, survey respondents are optimistic about the next half year as reflected in a diffusion index of 62 percent. Comparing their outlook for the first half of 2016 to the last half of 2015, 42 percent predict it will be better, 18 percent predict it will be worse, and 40 percent expect no change. The 13 industries expecting improvement in the first half of 2016 — listed in order — are: Printing & Related Support Activities; Textile Mills; Miscellaneous Manufacturing; Primary Metals; Nonmetallic Mineral Products; Transportation Equipment; Food, Beverage & Tobacco Products; Computer & Electronic Products; Fabricated Metal Products; Furniture & Related Products; Machinery; Electrical Equipment, Appliances & Components; and Chemical Products.

Non-ManufacturingThe first half of 2016 is predicted to be better than the last half of 2015, according to non-manufacturing purchasing and supply managers. The diffusion index indicating current expectations is 65.5 percent. Forty-three percent of respondents expect the first half of next year to be better than the last half of this year, 12 percent anticipate it will be worse, and 45 percent predict no change. The 14 industries expecting improvement in the first half of 2016 — listed in order — are: Finance & Insurance; Construction; Educational Services; Real Estate, Rental & Leasing; Professional, Scientific & Technical Services; Public Administration; Health Care & Social Assistance; Information; Accommodation & Food Services; Retail Trade; Transportation & Warehousing; Arts, Entertainment & Recreation; Management of Companies & Support Services; and Wholesale Trade.

Business — First Half 2016 vs. Last Half 2015

Manufacturing

Non-Manufacturing

PredictedDec 2015

PredictedDec 2015

Better

42%

43%

Same

40%

45%

Worse

18%

12%

Diffusion Index

62.0%

65.5%

Note: A diffusion index above 50 percent would generally indicate an expectation of the first half of the coming year being better than the second half of the current year.

The Second Half of 2016 Compared with the First Half of 2016

ManufacturingPurchasing and supply executives are somewhat more optimistic about the second half of 2016 compared to the first half of 2015. The percentage of survey respondents who forecast the second half of 2016 to be better than the first half is 45 percent, while 11 percent expect it to be worse, and 44 percent expect no change. The diffusion index for the second half of 2016 is 67 percent, compared to 62 percent for the first half of 2016. The 13 industries predicting improvement in the second half of 2016 — listed in order — are: Nonmetallic Mineral Products; Furniture & Related Products; Chemical Products; Computer & Electronic Products; Miscellaneous Manufacturing; Fabricated Metal Products; Food, Beverage & Tobacco Products; Electrical Equipment, Appliances & Components; Paper Products; Primary Metals; Petroleum & Coal Products; Machinery; and Transportation Equipment.

Non-ManufacturingComparing the second half of 2016 to the first half, non-manufacturing purchasing and supply executives feel slightly less optimistic as they do for the first half of the year compared to the last half of 2015 (diffusion index for the second half is 65.0 percent and the first half is the same at 65.5 percent). The percentage of respondents who currently forecast the second half of 2016 to be better than the first half is 39 percent, while 9 percent expect it to be worse. An additional 52 percent of purchasers expect no change. The 13 industries expecting improvement in the second half of the year — listed in order — are: Information; Construction; Utilities; Educational Services; Mining; Professional, Scientific & Technical Services; Finance & Insurance; Management of Companies & Support Services; Transportation & Warehousing; Arts, Entertainment & Recreation; Wholesale Trade; Health Care & Social Assistance; and Public Administration.

Business — Second Half 2016 vs. First Half 2016

Manufacturing

Non-Manufacturing

PredictedDec 2015

PredictedDec 2015

Better

45%

39%

Same

44%

52%

Worse

11%

9%

Diffusion Index

67.0%

65.0%

Note: A diffusion index above 50 percent would generally indicate an expectation of the second half of the coming year being better than the first half.

SPECIAL QUESTION TOPIC: SHARPLY LOWER OIL PRICES

ManufacturingIn response to a special question in which we asked the panel about the net impact to date on their organization's profits due to the sharply lower prices of oil and related commodities in 2015, Manufacturing respondents indicated the following:

Negative impact on organization's profits: (13.7%)

Negligible impact on organization's profits: (36.0%)

Positive impact on organization's profits: (43.4%)

Unsure: (6.9%)

Non-ManufacturingIn response to a special question in which we asked the panel about the net impact to date on their organization's profits due to the sharply lower prices of oil and related commodities in 2015, Non-Manufacturing respondents indicated the following:

Negative impact on organization's profits: (9.3%)

Negligible impact on organization's profits: (43.0%)

Positive impact on organization's profits: (37.7%)

Unsure: (9.9%)

SPECIAL QUESTION TOPIC: STRENGTH OF THE U.S. DOLLAR

ManufacturingIn response to a second special question in which we asked the panel about the net impact on their organization's profits for the full year of 2015 related to the strength of the U.S. dollar, Manufacturing respondents indicated the following:

Negative impact on organization's profits: (21.3%)

Negligible impact on organization's profits: (37.9%)

Positive impact on organization's profits: (25.3%)

Unsure: (15.5%)

Non-ManufacturingIn response to a second special question in which we asked the panel about the net impact on their organization's profits for the full year of 2015 related to the strength of the U.S. dollar, Non-manufacturing respondents indicated the following:

Negative impact on organization's profits: (10.7%)

Negligible impact on organization's profits: (56.0%)

Positive impact on organization's profits: (17.3%)

Unsure: (16.0%)

INVENTORY-TO-SALES RATIO

ManufacturingOf the 96 percent of manufacturing purchasers who answered this question, 15 percent anticipate increasing their purchased inventory-to-sales ratio during 2016. An additional 23 percent expect their ratio to drop, and 62 percent see no change. The diffusion index of 46 percent suggests the inventory-to-sales ratio may drop somewhat in 2016.

Non-ManufacturingOf the 76 percent of non-manufacturing purchasers who answered this question, 13 percent anticipate increasing their purchased inventory-to-sales ratio during 2015. An additional 11 percent expect their ratio to drop, and 76 percent see no change. The diffusion index of 51 percent suggests the inventory-to-sales ratio will grow slightly in 2016.

Predicted Change in Purchased Inventory-to-Sales Ratio

Manufacturing

Non-Manufacturing

For 2015PredictedDec 2014

For 2016PredictedDec 2015

For 2015PredictedDec 2014

For 2016PredictedDec 2015

Greater

19%

15%

8%

13%

Same

60%

62%

85%

76%

Smaller

21%

23%

7%

11%

Diffusion Index

49.0%

46.0%

50.5%

51.0%

Note: A diffusion index above 50 percent would indicate an increase in the inventory-to-sales ratio; below 50 percent, a decrease in the ratio.

OUTLOOK FOR THE NEXT 12 MONTHS

ManufacturingCompared to the outlook for 2015 reported in December of 2014, survey respondents this year are somewhat less optimistic about the outlook for 2016. Forty-eight percent of respondents believe 2016 will be better than 2015. Only 37 percent of respondents believe 2016 will be the same as 2015, and 15 percent believe 2016 will be worse than 2015. The resulting diffusion index for the outlook for 2016 is 66.5 percent, compared with 75.5 percent from one year ago, when looking forward to 2015.

Non-ManufacturingNon-manufacturing survey respondents are overall slightly less optimistic on their outlook now as compared to when they looked ahead in December 2014. Because a larger proportion of respondents this year believe 2016 will be the same as 2015 and a larger proportion of respondents believe 2016 will be worse than 2015, the diffusion index looking forward into 2016 is slightly lower than the diffusion index looking forward into 2015.

ManufacturingPurchasing and supply executives are expecting the U.S. dollar will strengthen in 2016 against all the foreign currencies listed below. The average diffusion index for this forecast is 60.2 percent, a decrease of 7.5 percent over the December 2014 forecast average of 67.7 percent.

U.S. Dollar Will Be:

Euro

Canada$

BritishPound

JapaneseYen

MexicanPeso

Korean Won

Taiwan$

Stronger than

49.6%

39.5%

29.0%

39.6%

44.8%

38.6%

40.0%

Same as

27.6%

42.9%

53.0%

38.5%

36.2%

40.0%

42.7%

Weaker than

22.8%

17.6%

18.0%

21.9%

19.0%

21.4%

17.3%

Diffusion Index

63.4%

61.0%

55.5%

58.9%

62.9%

58.6%

61.4%

Note: A diffusion index above 50 percent would predict a generally stronger U.S. dollar; below 50 percent, a generally weaker U.S. dollar, with the distance from 50 percent indicative of the predicted strength or weakness.

SUMMARY

ManufacturingThe manufacturing sector is currently expanding, and the forecast indicates that it will continue to expand in the first half of 2016, and expand at about the same rate in the second half of 2016.

In addition to the forecast, the Manufacturing ISM®Report On Business®is issued monthly and is considered by many economists to be the most reliable near-term economic barometer available. It is reviewed regularly by government agencies and economic business leaders. The report, compiled from responses to questions asked of purchasing and supply executives across the country, tracks industrial production, new orders, inventories, supplier deliveries, imports, exports, backlog of orders, employment, customers' inventories, buying policies and prices. The report has been issued by the association since 1931, except during World War II.

Covering the non-manufacturing sector, ISM debuted the Non-Manufacturing ISM®Report OnBusiness® in June 1998. The Non-Manufacturing ISM Report On Business® is released on the third business day of each month, and is based on data received from purchasing and supply executives across the country. The report covers business activity, new orders, backlog of orders, new export orders, inventory change, inventory sentiment, imports, prices, employment, and supplier deliveries.

The industries reporting growth, as indicated in the Manufacturing and Non-Manufacturing ISM® Report On Business® monthly reports, and in this semiannual forecast, are listed in the order of most growth to least growth. For the industries reporting contraction or decreases, those are listed in the order of the highest level of contraction/decrease to the least level of contraction/decrease.

The Manufacturing and Non-ManufacturingISM®Report On Business® is published monthly by the Institute for Supply Management®, the first supply institute in the world. Founded in 1915, ISM's mission is to enhance the value and performance of procurement and supply chain management practitioners and their organizations worldwide. By executing and extending its mission through education, research, standards of excellence and information dissemination — including the renowned monthly ISM®Report On Business® — ISM maintains a strong global influence among individuals and organizations. ISM is a not-for-profit educational association that serves professionals with an interest in supply management who live and work in more than 80 countries. ISM offers the Certified Professional in Supply Management® (CPSM®) and Certified Professional in Supplier Diversity® (CPSD®) qualifications.

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The next ManufacturingISM Report On Business® featuring the December 2015 data will be released at 10:00 a.m. (ET) on Monday, January 4, 2016.

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